USEC Inc. (USU): 1Q2008 First take: Full-year outlook reiterated - Goldman Sachs - April 30, 2008
News
USEC reported 1Q2008 EPS of $0.04 versus our estimate of $0.06 and consensus of $0.08. Earnings were slightly below our forecast, but the difference was driven by the timing of deliveries, which are back half-loaded this year. Management’s full-year 2008 outlook was left unchanged. Management expects 2008 net income of $25-$45 mn (versus our estimate of $40.5 mn heading into the quarter) and cash flow from operations of negative $60-$80 mn. Average SWU price billed to customers declined 5% year over year, but was flat when excluding uranium barter sales, which provided a one-time boost in 1Q2007.
Analysis
In our view, the American Centrifuge Project (ACP) remains the key driver of valuation, and as expected there was no incremental ACP news in the 1Q earnings release. USEC recently provided an update on ACP progress and a full budget review is not expected to be completed until June.
We continue to view USEC’s risk profile as high, but we see three potential near-term catalysts:
(1) USEC appears to be in a strong position to receive a DOE loan guarantee (which could potentially be awarded by the end of 2008 or early 2009),
(2) re-stripping of DOE high assay tails could be a meaningful opportunity, and
(3) underfeeding remains a potential source of upside to near-term earnings.
During the quarter, deferred revenue increased to $210 million from $116 million, primarily driven by increased underfeeding. Management is expecting ACP costs of $3.5 bn versus our estimate of $4 bn; we continue to see risk of further cost overruns given commodity and E&C labor inflation.
Implications
USEC shares are likely to remain choppy as investors digest results, but we believe the 10% sell-off in the after-market is an overreaction given
(1) the full-year outlook was reiterated and
(2) quarterly volumes/earnings can be noisy due to volatile shipment timing.
Our estimates and price target are under review pending the conference call (April 30, at 8:30 AM EST). |
